The surprise step, which is thought to be in the works for at least few months before the announcement, sent shockwaves across households and small businesses – which heavily rely on cash-based transactions. Stock markets also felt the tremors when they opened on Wednesday, 9 November, but quickly returned to normalcy..."

"Although Modi's move in stripping a currency unit of its status as legal tender is not an unprecedented scene in independent India, the sheer magnitude of the clampdown posed some uncertainty for the financial sector. Even the chiefs of top banks were in the dark until when the prime minister formally made the announcement on Tuesday (8 November). The two banknotes together account for 86% of India's currency by value in circulation and nearly 12% of the country's GDP."

"India has a thriving parallel economy which survives only of cash transactions and Modi's latest move is intended to press the reset button of that economy. The announcement by the prime minister also aims to hammer hard on illegal money laundering, counterfeit notes and unearth the unaccounted funds, popularly known as black money. The real estate sector – where the undeclared funds are often parked – is likely to take the biggest hit in the immediate future, according to analysts. The Indian government's chief economic adviser Arvind Subramanian said: "I think this is an important step. What the government has taken in the fight against corruption, counterfeiting and black money. So I think over the medium term we will see the benefits probably." One of the key reasons for curbing the 500 and 1,000 notes is because of the rapid rise in their circulation during the last five years – while the number of Rs 500 notes grew by 76%, the Rs 1,000 notes rose by 109% since 2011.

With immediate effect, the 500 and 1,000 denominations were made illegal tender from midnight as the government pledges to refill the citizens' pockets with a newly inducted Rs 2,000 note and a fresh Rs 500 – both are claimed to have been made hard-to-fake notes. The new notes would be made available from 11 November and initially they would be rationed.

"There are going to be some difficulties which they (people) will face but for their convenience, a number of steps have been taken by the government, there are facilities to withdraw money from ATM and exchange currency at banks, withdraw money from accounts," Finance Secretary Ashoka Lavasa said on Wednesday, 9 November hinting that the government is aware of swift meltdown.

Wishes and concerns have been pouring in from all corners for the Modi administration for taking such a bold initiative. While majority of the political leaders have welcomed the move, West Bengal's Chief Minister Mamata Banerjee, a sharp critic of the federal government, said: "Withdraw this draconian decision. This is a financial chaos and disaster let loose on the common people of India."

So why the significance? Four days of financial fasting. India is the birthplace of Capitalism. Imagine if it 'appened here, Sterlings or for that matter, there. Dollars & Euros. Money is only a tool, and I'm not buying into the official 'fight against corruption, counterfeiting and black money'.

Power corrupts. So what is Modi's modus operandi?

Further, as an inconvenient truth, wot did Gollum and Smaug have to do with it....

15 Comments

I'm hardly alone in following the Sirius star. The stock has been a firm favourite among private investors for some time now, and with good reason. This is one of the world's potentially most lucrative mining projects, and for once it's physically located (rather than just listed) in the UK. Of course, that has been one of the problems, as it's based under the North Yorks Moors National Park, and has had to clear some of the most stringent planning hurdles in the world. It cleared them all several months ago, but still I waited.

That's because the next step was to secure $3.7bn required to dig the mine in an environmentally sensitive way and bore a 23-mile tunnel to a purpose-built export berth in Wilton, Teesside. Coming up with that kind of money isn't easy in today's uncertain world. Bizarrely, it came up with $2.6bn of stage 2 financing first. That still left it needing $1.09bn of state 1 financing, which it has finally secured.

Late in October, chief executive Chris Fraser announced $300m of funding from the UK subsidiary of Australian group Hancock Prospecting, controlled by iron ore heiress Gina Rinehart, Australia's richest woman, who looks like she has lived up to her reputation as a tough negotiator.

Wise Fools

Fraser swallowed what seems to me like a costly deal for Sirius by announcing that the remaining money would come from a placing of new shares and convertible bonds. Several Fool contributors had warned this might happen, happily alerting me to the danger of purchasing before stage 1 financing was complete. So I held off and I'm glad I did, because Sirius estimated that the new shares will be priced between 20p to 30p, well below their market value at the time. When the news broke, the company's share price plunged from around 40p to 25p. That is a real pain for existing investors and I feel for them, but it's an opportunity for Johnny-come-latelies like me.

I would like to say we've found a floor for the share price, but of course this is no such thing. There may be more dilution further along the line, say, if £400m of convertible bonds aren't paid in full, or it has to raise further funds over the next two or three years, during which time it will incur large development costs while generating no income at all. As a private investor, I can afford to take a position now and hold on for the longer term, in the hope that management claims that the project has a net present value of $15.2bn (against a market cap of just £561m) will ultimately be realised.

Again, there are no guarantees Sirius Minerals will succeed, but Chris Fraser has jumped through so many hurdles, I wouldn't bet against him now. Within five to 10 years, the shares may be worth a lot more than 25p, and I'm willing to dig in now and wait."

"While Indian cities are full of bank branches, those living in rural areas will find exchanging the old notes a little difficult. Only 27% of Indian villages have a bank within 5km (three miles).

The idea behind this move, the government says, is to curb "financing of terrorism through the proceeds of fake Indian currency notes and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contraband into India".

"News reports suggest that jewellers in many parts of the country worked overtime through the night of 8 and 9 November to help convert 500 and 1,000 rupee notes into gold...."

"...given that the old denomination notes form more than 86% of notes in circulation by value."

"..a portion of the payment while buying a house in India is almost always made in the form of cash...

With the high denomination notes having been taken out of circulation, it will become very difficult to organise for this payment and so prices are expected to fall.

If prices do fall, it will make real estate affordable. At affordable prices, the demand for real estate is likely to go up.

This is expected to create low-skilled and unskilled jobs which the country badly needs, given that one million individuals enter the workforce every month.

But the retail as well as the luxury goods businesses where the bulk of transactions are carried out in cash are expected to be hit as cash transactions will come down dramatically in the short term."

"Another research paper, entitled The Cost of Cash in India, points out that "the ratio of currency to GDP in India (12.2%) is higher than countries such as Russia (11.9%), Brazil (4.1%), and Mexico (5.7%)".

"...Most Indian housewives are in the habit of saving small amounts of money, often taken from their husbands' earnings. In many cases significant amounts of cash have suddenly been declared worthless."

"Indu Mehra lives in Delhi's Karol Bagh area and has been quietly saving little amounts for more than 10 years. Her husband, who runs a business, didn't know about her savings until Wednesday.

"I frequently got cash as gifts from my parents and my husband for more than 10 years. This amount was meant for rainy days and my husband and children didn't know about it, but now they know.

"I support Mr Modi's move, but I don't like the way he did it. He should have given us some notice, then I may have been able to quietly change my savings without my husband getting to know about them.

"Also, I have seen daily-wage labourers struggle to buy basic things like food and milk in the last few days. Given the queues at banks today, their situation is unlikely to change for a few days."

Ouch.

"Kiran Rajpal was queuing up at a bank in Delhi along with her daughter to deposit her savings into her account. She says that she will tell her husband only after she manages to deposit them into her account.

"I don't think my husband is going to be upset when I tell him about my savings. I think he will see the point that I saved, mostly from his salary, for our children's future. I don't think I have done anything unusual, every Indian woman has a secret savings box that she keeps for emergencies or occasions like birthdays and weddings."

"Sunita Saigal is a school teacher and supports the government's decision. She says she doesn't mind "little problems like queues" because it "will reduce corruption".

"It's okay that women like me now have to reveal our secrets. But we shouldn't worry because we save for our families. I have given money to my children and husband so many times from my savings box, but I always ensure that I keep replenishing it.

"I will continue to do that, just that now my savings secret won't be a secret any more."

"Indian industrial giant Tata Sons has deepened the row between it and former chairman Cyrus Mistry.
In a strongly worded statement, Tata said Mr Mistry presided over falling income, rising costs and "dismantled" the company's structure.
His sudden removal last month shocked the business world, and no explanation was given at the time...

"Tata Sons, is the holding company for Tata Conglomerate, a group of 100 companies whose interests include steel, Jaguar Land Rover and Tetley Tea.
Tata's statement said that in the four years of Mr Mistry's chairmanship, the three main problem companies - which include Tata Steel Europe, owner of Port Talbot - had not improved...."

"The queues are getting longer and angrier, and despite the government's loud promises, banks and ATMs are quickly running out of cash. Limits on cash withdrawals are not helping matters much.

There are stories of desperate people burning sacks of illegal cash and of people unable to pay for cremations and hospital admissions. Wherever I go - my workplace, the community park, the local market- people are fretting over ways to get some of their own hard-earned money to run their lives..."

"A kind neighbour swiped his card to take 400 rupees out of a groaning cash machine and give it to me when he saw my crestfallen face after the machine rejected my card. Friends and co-workers are generously lending from their own limited stocks of small cash. After several unsuccessful visits to overcrowded banks and empty cash machines, many ordinary people are living on a wing and a prayer....

"Outside the chaos inflicted upon honest, tax-paying and low-income Indians, a burlesque of sorts is playing out as others try to game the system and convert hordes of scrapped illegal cash into gold and goods, which they can then hoard or sell. For a country inured to corruption and illegal money, there's no dearth of ideas...."

"... Everyone is upset. One woman tells me that her kitchen is empty. "We have nothing to eat. I was hoping to buy some tea, sugar and flour to get by. Now what?"

There is a lot of anger and bewilderment at the government's decision to take the 500 and 1,000 rupee notes out of circulation.

"Do you think we have black money [unaccounted cash] here?" asks Gajendra Singh, a farmer. "Farmers don't have to pay income tax in any case. So our cash is legal. We just keep it at home."

There are other, practical issues.

Mahesh Kumar has travelled 40km to come here, armed with 400,000 rupees ($5,895) in the banned notes. "There are 32 of us in my family. This money belongs to all of us."

But Mr Kumar, like the vast majority of rural Indians, does not have a bank account. And the bank has no time to open one for him.

"What am I to do now?" he asks showing me a duffle bag stuffed with money. "They tell me this money is worthless. Does that mean our savings are wiped out?"

The impact of the currency crisis, however, goes beyond individual households.

It is hurting the entire rural economy.

Just behind the village are vast farmlands. Only a handful of farm workers are at work, painstakingly sowing onion seeds into the soil.

"This is an onion-growing area," local farmer Rameshwar Bagrodia explains. "It's labour intensive, you need hundreds of workers and this is the start of winter crop season. But no-one has any money to pay them."

It gets worse. The local livestock market, which normally does extensive trade, has ground to a halt - affecting suppliers, buyers and transporters.

"Even the milk that is locally produced has no takers. It's all going to waste," Mr Bagrodia says.

At the teashop, where most people have now gravitated to, the mood is dark.

"This matters to Yorkshire’s rural heartlands and beyond. We are only 62 per cent self-sufficient in food production. That makes us very reliant on food imports which, in turn, pushes up the cost of food in the shops.

Government measures to boost exports are welcome and already producing results in countries such as China, but these take time. Until the imbalance in food imports/exports is redressed, there will be an ongoing trade deficit and I hope Ministers will acknowledge this.

In the short term, the low value of the pound has meant an increase in basic farm payments for farmers, but these would cease on Britain leaving the EU in 2019.

Currency value is one part of the equation for farming alongside the vagaries of global markets and convoluted supply chains.

Imports of fuel, fertiliser and machinery will negate many of the benefits from currency changes.

In 2013, the UK’s trade deficit with the other EU countries in raw materials amounted to €12bn. With a low pound, the cost of these component raw materials becomes so much higher. Only where there is substantial added value to the product would these goods become more competitive from the UK. The weaker pound possibly only helps 10 per cent of those manufacturers that export whereas the vast majority would not benefit. Understandably, with the low level of the pound, interest rates at a record low and savers getting poor returns on their investment, more people are wary of spending money,

Marmite wars with jars costing over 10 per cent more owing to the value of the pound took the country by surprise while producers of crisps and fish fingers say the costs will rise by a similar margin or more.

There has been good news for farmers in Yorkshire who are paid in euros, hence their farm payments will have seen a temporary increase, but the cost of animal feed for their livestock will have increased incrementally. Furthermore, price increases will, of course, fuel inflation. It is understood that market forces will prevail and the pound will find its own level, but a rise in interest rates before Brexit would help.

Looking ahead to the Autumn Statement with interest, one area of spending which would boost the economy and economic growth would be in the area of infrastructure and in particular, flood protection and defences.

From my time as MP for Thirsk & Malton MP, and then chairman of Parliament’s environment committee until the last election, small flood protection measures are already happening and making a difference. Common Agricultural Policy money is being used to retain flood water temporarily on farm land, to plant trees and encourage natural flood defences to slow the flow of flood waters, as was so successfully engineered in Pickering.

Water companies have a role too as well as internal drainage boards doing key regular maintenance.

A gamechanger would be either pump priming, or making a return on investment in flood defences on a grand scale, by the insurance sector and pension funds. One alternative would be to reward insurance firms for investing in those areas most at risk of flooding which, in turn, might save the huge losses of some £3bn in insurance costs in one year alone in the wake of major floods.

Local communities, as well as the national economy, would benefit. A good use could be made in this regard of even a small percentage of the flood insurance premium tax we all pay. Hypothecation at its best, but a reminder that the future of the rural economy – and the protection of communities at risk of flooding – is intertwined with the fortunes of the national economy as Britain prepares for Brexit.

This must not be overlooked.

Anne McIntosh is the former Thirsk & Malton MP and ex chairman of Parliament’s environment committee. Now a Tory peer, she’s leading a House of Lords debate on the rural economy."

"The bold move to demonetise high value denominations… is an important step to move away from a shadow economy to an even more transparent economy," Mr Gates said in an address to Prime Minister Narendra Modi and his cabinet colleagues on Wednesday.

He was keen to tell me why. Perhaps not surprisingly, the Microsoft founder sees technology as key.

He believes India is on the verge of a digital financial revolution that goes well beyond the online payments and plastic cards that most banks already offer their customers.

He is looking forward to the entry of players such as mobile phone companies and others into the consumer finance market - something the Modi government has said it is poised to authorise.

These services use software first developed in Africa to transform your mobile phone into a kind of digital bank branch, allowing you to pay for goods and services, transfer money and even get loans at the push of key...."

"NEW DELHI — On Nov. 8, the Indian government announced an immediate ban on two major bills that account for the vast majority of all currency in circulation. Indians would have until the end of the year to change those notes for other bills, including newly minted ones.
On Wednesday, the government released via a smartphone app called “Narendra Modi,” named after the prime minister, the results of a survey purporting to show 90 percent support for its so-called demonetization policy...

"Demonetization may have been well-intentioned, but it was a major mistake. The government should reverse it. It could at least declare that 500 rupee notes, which many poorer people frequently use, are legal again.
And if the government really does want to limit the amount of black money in circulation, it would do better to move India toward becoming a more cashless society. About 53 percent of adult Indians have a bank account, but many signed up at the government’s initiative and so quite a few of the accounts are dormant. On the other hand, more than one billion people in India have a cellphone, and this could be tapped to encourage more active banking, in the form of mobile banking.
India’s push to issue a unique I.D. number to all Indians based on their biometric information is a major step in the right direction. More than one billion people have already been registered, according to the government, potentially enabling them to use an app to collect pensions, for example.
Tackling corruption also goes beyond currency, cash or even banking. It requires changing institutions and mind-sets, and carefully crafting policies that acknowledge the complexity of economic and social life. The government could start by increasing penalties for tax evasion and amending India’s outdated anti-graft laws.
In a country like India, where the illegal economy is so intimately intertwined with the mainstream economy, one inept government intervention against shadow activities can do a lot of harm to the vast majority, who are just trying to make a legitimate living."

"The 68-year-old chief minister of Tamil Nadu state suffered a heart attack on Sunday night and died at 23:30 local time (18:00 GMT) on Monday, Chennai's Apollo Hospital says.

Her body, draped in the Indian flag, is on display at a large public hall.

Extra police have been deployed in the southern state amid fears of unrest.

The extreme devotion she inspires among her supporters, many of whom refer to her as "Amma" (mother) have led to concerns that they could resort to self-harm or violence.

Earlier reports of her death, which were swiftly withdrawn, prompted scuffles between police and her supporters outside the private hospital.

However, lines have been orderly so far, despite the visible emotion among the crowds who are queuing up to catch a final glimpse of Jayalalitha. Many are openly weeping while some are beating their heads and chests..."

"Down one of the hundreds of dusty lanes that make up Gandhi Nagar market, Delhi’s largest textile bazaar, the small factory where Neeraj Sharma produces girls’ jeans is quiet.

“Normally you couldn’t walk in here,” he says, ambling across the concrete shop floor, past dormant sewing machines and piles of unfinished denim.

"Sharma estimates around 80% of his workforce have left Delhi for their villages in the past month. “It’s good that they left,” he adds. “Because of this demonetisation problem, there’s no work for us either.”..."